The survival of Lehman Brothers, Wall Street's fourth largest investment bank, hangs in the balance this weekend as the US Treasury and Federal Reserve Bank frantically try to organise a rescue bid from a consortium, spearheaded by Bank of America.

The consortium is also being backed by the China Investment Company and financial turnaround specialist JC Flowers. Barclays could also become involved in the consortium's plan for a break-up bid. Alternatively, the US authorities may persuade the consortium to provide a temporary shelter for Lehman, prior to a fire sale of its assets and mass layoffs.

Either way, a huge proportion of the bank's 26,000-strong global workforce are expected to lose their jobs, including several thousand in London.

The situation is complicated because US Treasury Secretary Hank Paulson has indicated that the authorities are not prepared to bail out Lehman with taxpayers' money in the way it did with mortgage giants Fannie Mae and Freddie Mac last week. Nor are they prepared to furnish financial guarantees of the kind that helped to facilitate the sale of Bear Stearns to JP Morgan earlier this year.

Banking sources say it is not impossible that Lehman will go under, or be put into a form of temporary bankruptcy.

Without a rescue deal that can be unveiled to the market tomorrow, Lehman's share price could fall further. It has lost three-quarters of its value in four days and has fallen 97 per cent in the past year. Paulson is understood to be pushing hard for its executives to complete a sale to Bank of America by this evening.

But many potential buyers said they would not risk taking on Lehman's mortgage-related assets without some sort of government protection.

As the bank's collapse accelerated on Friday, other mooted buyers, including Barclays and private equity firm Kohlberg Kravis Roberts, temporarily withdrew from discussions, indicating it would be cheaper to hire Lehman employees than buy the firm. But Barclays Capital boss Bob Diamond is thought to remain interested.

US analysts say that a Bank of America/Lehman deal is the most logical outcome. 'I believe Bank of America will win the auction,' said highly regarded market analyst Dick Bove. 'There is a natural fit between the two.'

...#9632; Fears are growing for the future of AIG, one of the world's biggest insurance firms, which on Friday saw 30 per cent wiped off its value. The US insurer appears to be in urgent need of fresh capital. A statement is expected early this week.